Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of standard machine-hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-hours (the denominator activity level chosen for the current year): During the current year, the following operating results were recorded: At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits of $136,000 for overhead applied. The difference ($9,100) represents under-applied overhead, the cause of which management would like to know.
Required:
a. Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate.
b. Show how the $136,000 of overhead actually applied was computed.
c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed manufacturing overhead budget and volume variances.

Question

Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of standard machine-hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-hours (the denominator activity level chosen for the current year):  During the current year, the following operating results were recorded:  At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits of $136,000 for overhead applied. The difference ($9,100) represents under-applied overhead, the cause of which management would like to know.
Required:
a. Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate.
b. Show how the $136,000 of overhead actually applied was computed.
c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed manufacturing overhead budget and volume variances.

Quizplus · Accepted Answer

The Answer of Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of standard machine-hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-hours (the denominator activity level chosen for the current year):  During the current year, the following operating results were recorded:  At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits of $136,000 for overhead applied. The difference ($9,100) represents under-applied overhead, the cause of which management would like to know.
Required:
a. Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate.
b. Show how the $136,000 of overhead actually applied was computed.
c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed manufacturing overhead budget and volume variances.

Nova Corporation Produces a Single Product and Uses a Standard